International investors Cairn Energy and Devas Multimedia are circling PM Narendra Modi’s India, which has taken brazen actions to evade international arbitration judgments totalling more than $2.4 billion, according to India’s leading business daily, Mint.
“Winners of international arbitration awards are circling the assets of the Indian government to recover at least $2.4 billion as court cases to enforce them reach the final stages. The outcome of these cases is crucial, as it could have a bearing on other ongoing arbitration cases as well,” the Mint reports.
On Friday, Cairn Energy filed a complaint in the U.S. District Court for the Southern District of New York to seize joint control of Air India as an alter ego of the Indian state in order to enforce the arbitral judgment in its favor, which India has refused to honor. This followed a letter sent to Modi and other Indian officials on May 6 by Devas investors and shareholders threatening a new arbitration claim over an unlawful, thuggish campaign “on war footing” by the government to liquidate the company to block enforcement of three separate arbitral awards against India and the state-owned company Antrix.
“The highest levels in the government have taken note of these cases, an official said on condition of anonymity, given their huge financial implications and the questions they raise about India’s obligations, policies and rights, including taxation,” the Mint noted.
Devas and its affiliates are currently owed more than US$1.5 billion by the Government of India, as confirmed by three separate independent international arbitration tribunals, as a result of the Government’s decision to illegally expropriate and breach the company’s due process rights when the Government improperly terminated Devas’ contract with Antrix, the marketing arm of India’s national satellite industry.
In the early 2000s, global pioneers and investors in satellite communications conceived the idea of Devas Multimedia Pvt. Ltd. In January 2005, Devas entered into an Agreement (the ‘Devas Agreement’) with Antrix and its parent the Indian Space Research Organisation (ISRO) to build out an innovative hybrid satellite and terrestrial communications service throughout India. This system would have delivered cutting-edge digital multimedia broadcasting service and mobile broadband across India using the S-band spectrum. The project would have brought significant economic and societal advancement for the lives of hundreds of millions of people by ensuring access to high-speed communications and the internet. In February 2011, behind the back of Devas and its investors, the Government of India secretly moved to wrongfully terminate the agreement.
Under Prime Minister Modi, expropriations of private property by the Indian government have increased and India has ripped up over 70 bilateral investment treaties. This has driven up the expense and risk of doing business in the country. The World Bank ranked India 163 out of 190 economies in terms of contract enforcement mechanisms in its 2020 Ease of Doing Business report. In the 2021 Index of Economic Freedom report, the Heritage Foundation ranked Labor Freedom, Investment Freedom, and Financial Freedom in India as “repressed” assigning a score of 41.3, 40, and 40 (0-100) for each category respectively. Moody’s and Fitch lowered their issuer default rating from ‘stable’ to ‘negative’ for India in June of 2020, citing the government’s inability to adopt policies to mitigate the risks of a long period of low growth.
In addition, the World Bank Group also noted that the ratio of gross non-performing loans to assets of commercial banks in India could be as high as 15%. Further, Pew notes that the Covid-19 pandemic forced an additional 75 million Indians into poverty.
Outside of seeking international arbitration for disputes, the Indian judicial system provides little comfort or redress for investors that have had their assets seized, contracts unlawfully terminated and employees harassed by state intelligence.
Freedom House’s latest Freedom in the World Report 2021 is scathing, ““The judiciary is formally independent of the political branches of government […] However, lower levels of the judiciary suffer from corruption, and the courts have shown signs of increasing politicization… Also in 2020, the president appointed a recently retired chief justice to the upper house of Parliament, a rare move that critics viewed as a threat to the constitutional separation of powers.”
Freedom House downgraded India’s ranking on Rule of Law, with its judiciary ranked as equivalent Madagascar and Togo.
Under Modi, the Indian government has also cancelled over 50 Bilateral Investment Treaties (BIT) – and has ignored its obligations under countless others. This is textbook behaviour of a scofflaw regime, not a free democracy.
This anti-investor approach has a real-world impact: before the COVID-19 pandemic, the Indian economy had sunk to its lowest ebb in over 40 years. This is the result of policies that are anti-investor, anti-rule of law, and pro-corruption.
International Arbitration Actions
Following India’s decision to repudiate the Devas Agreement, Devas and its shareholders initiated a series of arbitration actions. The first was before a tribunal in New Delhi against Antrix under the rules of the International Chamber of Commerce (ICC), as per Article 20 of the arbitration provisions of the Devas Agreement. Devas’s Mauritian shareholders commenced the second arbitration action against India before a tribunal seated in The Hague under the Arbitration Rules of the United Nations Commission on International Trade Law (“UNCITRAL “). In September 2015, the ICC tribunal ruled in favor of Devas, resulting in an award of US$672 million for “unlawfully terminating” the agreement. In July 2016, the UNCITRAL tribunal ruled in favor of Devas’s Mauritian shareholders, finding India liable for “unlawful expropriation” of Devas and for failing to provide fair and equitable treatment in violation of the India–Mauritius Bilateral Investment Promotion and Protection Agreement (BIPA), Articles 4 & 6. The UNCITRAL tribunal awarded the Mauritian shareholders damages totaling US$111 million, plus interest. These awards are currently being enforced in U.S. District Courts. With interest, the awards now amount to more than US$1.6 billion.
A third arbitration was brought by Deutsche Telekom, another investor in Devas, against the Republic of India in September 2013 before an UNCITRAL tribunal seated in Geneva. The tribunal held that India had violated the Bilateral Investment Treaty between India and Germany by failing to provide fair and equitable treatment to the company. On May 27, 2020, the tribunal issued a final award to Deutsche Telekom totaling US$132 million plus interest until paid in full.
Indian Government’s Actions to Forcibly “Wind Up” Devas Violates Companies Act
Solicitor General Tushar Mehta, on behalf of the Indian Government, convinced the National Company Law Tribunal (“NCLT”) to appoint a government liquidator to wind up Devas. The intention is to have the liquidator dispose of all the company’s assets, including the arbitration award from the International Chamber of Commerce (ICC), and further sabotage enforcement of the arbitration awards against the Indian Government.
The Companies Act has certain safeguards, and requires the NCLT to “give notice to the company and afford a reasonable opportunity to it to make its representations” before appointing a provisional liquidator pursuant to a wind-up petition. In the case of Devas, the Indian Government egregiously failed to do so. The Companies Act also provides that “where a provisional liquidator has been appointed the provisional liquidator shall take such steps and measures, as may be necessary, to protect and preserve the properties of the company.” In the case of Devas, the Indian Government also failed to do this.
Former Chief Justice V.N. Khare: NCLT Proceedings not “Bona Fide”
Justice V.N. Khare, a former Chief Justice of the Supreme Court of India, has called the proceedings against Devas before the NCLT not “bona fide.” He has commented further that in his “entire legal career and experience,” he has not witnessed a wind-up proceeding as the one leveled against Devas where the “current proceedings [are] unusual and against the fundamental principles of natural justice . . . enshrined in the Constitution of India”. Khare notes further in his declaration to the U.S. District Court Western District of Washington that he finds it “very shocking that it is the Government of India – against whose company an Award has been rendered and which thereby has become debtor of Devas – has itself authorized the very same company to file a winding up petition against its own creditor, and the Official Liquidator, who is also a Government employee, has taken over the affairs of Devas.”